Stocks

Interesting, and often contrarian, Snippets on individual companies and the stock market.

Stocks

Bond Change of Control Covenants – The New Poison Pill?

  • Many bonds have a covenant in case of a change of control allowing holders to put the bond back at par.
  • That didn’t matter when bonds were trading above par, but many don’t today – creating a potential headwind for M&A.
  • Here are some issuers where this is a big problem.
  • Lots more interesting analysis here.
Stocks

Aggregates Rock

  • Nice post about why aggregates businesses are so good.
  • “What makes a rock pit valuable is that nobody else can compete with it.  The nearest rival owner from two towns over isn’t going to haul his rock into your territory because the trucking bills would eat up all his profit.  No matter how good the rocks are in Chicago, no Chicago rock-pit owner can ever invade your territory in Brooklyn or Detroit.  Due to the weight of the rocks, aggregates are an exclusive franchise.  You don’t have to pay a dozen lawyers to protect it.” -Peter Lynch in One Up On Wall Street, 1989
Stocks

Commercial Aircraft Manufacturing is Hard

  • It was always hard and it isn’t getting any easier.
  • A nice article reflecting on the troubles of the Boeing 737 MAX – an update to a 50-year-old plane instead of a brand new model and why that decision was taken.
  • As we wrote before there really isn’t anything like this industry – “Aerospace is one of the deepest branches of humanity’s technological tree. It is a telling fact that more countries have produced a nuclear bomb than mass-produced a jet engine.“
Stocks

Biopharma M&A Green Shoots

  • Surprisingly a flurry of deals at the end of the year means 2023 was a record in terms of the number of deals >$1bn in value (source: Centerview, h/t Tema).
  • One of the reasons is likely a looming patent cliff.
  • Tema estimates that large-cap pharma has $838bn of dry powder – enough, even after the rally, to buy almost 70% of the XBI (without a premium).
Stocks

Einhorn’s Greenlight Q4 Letter

  • Always a good read.
  • The below sticks out. It is something many UK investors have long ago had to become accustomed to.
  • “We believe that the strong returns and alpha from the long book came from a successful adaptation of our style. We have become even more disciplined about price and emphasize investments where we get paid by the issuers, as opposed to relying on other investors to revalue the security. Payment can come to us in the form of buybacks, dividends, interest, or in some cases, a take-out from a buyer. With the decimation of the active fund management industry, we don’t believe we can reasonably expect securities to be re-rated by investors who are actively trying to figure out what they are truly worth.“
Stocks

Google Circle to Search

  • Gemini, Google’s AI model that runs on a phone, is coming to the latest Samsung flagship phone.
  • One cool feature is this.
  • Interesting corollary from Ben Evan’s “the most interesting thing is a new Google feature called ‘circle to search’. You can use your finger to draw a circle around anything on your Android phone screen, in any app, and Google will do a text or image search. So, you can circle a hat in a Tiktok and Google will tell you where to buy it. It occurred to me a while ago that screenshots are the native file format of smartphones, but they lose context. But what if the OS knows what’s on the screen, in every app? Screen-scraping is the new API…”
  • Source: Ben Evans.
Stocks

Fuel Economy and CO2 Trends

  • “In model year 2022, the average estimated real-world CO2 emission rate for all new vehicles fell by 10 g/mi to 337 g/mi, the lowest ever measured. Real-world fuel economy increased by 0.6 mpg, to a record high 26.0 mpg.1 This is the largest single year improvement in CO2 emission rates and fuel economy in nine years.“
  • 2023 model year is already showing improvement on this.
  • The long-term trend is encouraging (see chart) all while horsepower is up 88% since 1975 (see page 27).
  • Loads more excellent data from 2023 EPA Automotive Trends Report.
Stocks

EVs Having Issues

  • Something not so good is going on in EV land – and it isn’t aggressive Chinese competition.
  • Hertz for one has decided to dump 20,000 EVs citing hidden costs, especially of accidents.
  • “Expenses related to collision and damage, primarily associated with EVs, remained high in the quarter, thereby supporting the Company’s decision to initiate the material reduction in the EV fleet.“
  • Then there is this chart showing EVs are taking longer to sell.
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